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The Honest Services Argument and the Culture of Deceit

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On December 8, 2009 -- slightly more than a year after epidemic deceit brought disaster to the banking system and staggering losses to employees, retirees and stockholders -- the Supreme Court heard argument in two cases that, broadly speaking, ask whether we have any legal obligation to be honest with one another. That timely question involves seemingly technical language in a federal statute, but its answer will reverberate beyond the law books.

The case is a conundrum for conservatives. On the one hand, it features a criminal statute whose breadth seems rife with opportunities for prosecutorial overreach -- and Big Government is nowhere more menacing than in its power to imprison those not in step. On the other hand, the slide toward a culture of dishonesty, in which deceptiveness and outright lying increasingly threaten the trust essential for commercial and civic life, is scarcely something conservatives can welcome.

I

The more prominent of the cases involves Conrad Black, the newspaper magnate now incarcerated in a federal prison in Florida. The other involves a former Alaska state legislator, Bruce Weyhrauch, who has challenged his indictment and is pursuing an interlocutory appeal. The question before the Court is whether a defendant may be convicted for fraud under federal law merely for deceit, even if he did not intend economic harm to those he deceived or violate state law.

Black used his position with a company he controlled, Hollinger International, to obtain millions in phony management fees disguised as compensation for covenants not to compete with a newspaper Hollinger had spun off. The prosecution did not allege that Black contemplated any economic harm to Hollinger. Its position was that the "honest services statute", 18 USC §1346, permitted Black's conviction merely upon a showing that he had deprived Hollinger of its "intangible right of honest services."

The Seventh Circuit agreed in a unanimous opinion by Judge Posner. The Supreme Court took the case, however, in light of Black's argument that to allow his conviction on the reading of Section 1346 the appellate court adopted could criminalize virtually any form of public or private dishonesty. Black's position, argued in sharp terms by top-tier Supreme Court litigator Miguel Estrada, was that a broad interpretation potentially could expand the reach of ambitious prosecutors to dictatorial proportions.

Wehyrauch's case was argued by Don Ayer, formerly Deputy Attorney General under President Reagan. Wehyrauch, unbeknownst to his fellow state legislators, was seeking employment with a company that would benefit from a bill he was helping to write. The undisclosed conflict of interest was the basis of his indictment under §1346.

The dispute in these cases has a history. Section 1346 was adopted by Congress to effectively overturn the Supreme Court's 1987 ruling in McNally v. United States which had limited the scope of the mail fraud statute. The version of the law at issue in McNally made it a crime to use the mails to participate in "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses...."

The McNally defendants were convicted of committing fraud against the citizens of Kentucky for their role in a scheme to channel state workmen's compensation commissions to a company controlled by McNally and in which a crony of the governor had an interest. The prosecutor's theory was that they had defrauded Kentucky's citizens of their right to honest government -- technically, that they had denied the citizens their "intangible right to honest services."

The Court, dividing 7-2, held that the mail fraud statute as it then existed sought only to protect property rights, and "does not refer to the intangible right of the citizenry to good government." The Court noted that if Congress wanted to extend the statute that far, it would have to say so more clearly. Of the McNally Justices, only two remain: Scalia, who voted with the majority, and Stevens, who dissented, noting that the lower courts had for many years adopted the government's interpretation.

The year after McNally, in 1988, Congress added the "honest services" language of Section 1346. The statute has been used in recent years mostly to target corporate fraud, but its range is has been difficult for appellate courts to define.

II

Going into the argument, the government seemed to have the stronger case.  As the government's brief pointed out, for the Court to rule in the defendants' favor would amount to a judicial repeal of exactly the language it seemingly suggested and, indeed, all but demanded. It would also read into the statute a requirement -- intent to bring about economic harm -- nowhere to be found in its text. And it would ignore Section 1346's legislative history: Congress considered an economic harm requirement at one point in the drafting stage, and indeed wrote it into an early draft, but eventually took it out. The government insisted that it is not the Court's job to splice it back in.

Many members of the Court might ordinarily be expected to be sympathetic to an argument of that sort, but it was not to be. Instead, judging from the back-and-forth with counsel, it's unclear whether the government will get more than Justice Stevens' vote, if that. Justice Scalia reflected what appeared to be on the mind of most of his colleagues: "Why should I turn somersaults," he asked, "to find a way to save the statute?"

As Lyle Dennistion of SCOTUSBlog has pointed out, Scalia has been the statute's most ardent critic, but none of his colleagues, even Justice Stevens, rose to its defense. The argument explored, sometimes in overtly sarcastic terms, what specific "honest services" are demanded by the language Congress adopted. Is the law violated if an employee reads the racing form after misleading the boss into thinking he's actually working? What about playing hooky to go to a ball game? Or telling the boss you liked his hat when it actually made him look like a pumpkin? More broadly, might the statute be so vague that, as Justice Breyer asked, a hundred million workers might be violating it without knowing it? Justice Breyer's question could prove particularly ominous for the government, as it echoed his question eleven years earlier in the argument in Dickerson v. United States, 530 U.S. 428 (2000). That case considered whether 18 USC §3501's modification of Miranda could be sustained. Justice Breyer asked whether the statute's relaxation of the requirement for reading a suspect his rights was even plausible, since "a hundred million people know Miranda warnings," including those who had only seen them on TV. The re-appearance of Justice Breyer's gang of a hundred million would seem to auger no better for Section 1346 than it did a decade ago when the Court buried Section 3501.

III

The skeptical reception given the government was sufficiently telling that the statute might not have been salvageable under any circumstances. But the Department had available better answers than it gave. When asked how anyone could really know if what he was doing was illegal under the statute that ensnared Conrad Black, the right answer was not a resort to abstraction. It was that Black himself had no trouble knowing. The trial transcript reveals that when a subpoena arrived for the relevant business records, Black went into the office on a Saturday with his secretary and chauffer in tow, and carted out, using a back stairwell, boxes of documents, which he then secreted at home. But these facts went unmentioned at argument.

The subtext of the Court's question was that people can't really know when they're trying to pull a fast one that could get them in trouble with the law, but evidence in the very case before the Court provided a vivid example to the contrary. Indeed, it illustrated the truth the government seemed unwilling to speak, namely, that people know full well when they're cheating. Employees by the million may well spend worktime messaging on Facebook or looking at the porn site or the betting odds. But that such behavior is widespread scarcely shows, or even suggests, that anyone thinks it's honest. It is precisely because it's known to be dishonest that the instantaneous mouse click when the boss shows up at the door has become an American art form.

In other words, confronted with an unsympathetic audience, the government unaccountably passed on the opportunity, if not the necessity, of responding with the facts of the case and with readily recognizable vignettes from life as it's actually lived.

IV

Ultimately, though, the government's task might have been insurmountable. Recently a district judge in Washington, D.C., dismissed all charges against the politically very incorrect Blackwater defendants, on the persuasive theory that the indictment had been cobbled together using statements for which the executive branch had promised the defendants immunity. The court found that the government's explanation for the immunity breach was not credible -- or, in less polite language, false. In light of that development, and other signs that the Justice Department increasingly acts out of political and ideological motives (e.g., the Black Panther-with-nightsticks voting rights dismissal), it's all too easy to believe that a statute as potentially prone to abuse as 1346 could indeed be the road to tyranny.

So the Department's attempt to rescue a legal requirement for honest dealing might have tripped over its own dissembling. That is the penultimate irony of the argument. The ultimate irony is that, in a broader but critical sense, the government was trying to do the right thing. Conservatives are rightly concerned about the gargantuan nanny state -- the smiley-faced behemoth with the half-hidden iron fist, facilitated by gauzy criminal laws and long prison sentences to be enforced, or not, depending on the executive's political needs. But what they should be even more concerned about is the smooth-talking culture of deceit that created this danger -- the same cheat-a-little-here, cheat-a-little-there attitude that multiplied a million times spawned the nation-shaking banking crisis.

The Black case opens a window on our culture of dishonesty. Understandably seldom said out loud, the truth is that staggering amounts of misleading, deceptive and sleazy behavior, both public and private, are increasingly prevalent in this country and increasingly accepted. It didn't start with, "I did not have sex with that woman, Ms. Lewinsky," and it hasn't ended there. It's everywhere from WorldCom to "teaser" rates to liar loans to fly-by-night disaster "charities" to the razzle-dazzle microscopic fine print setting out the 89 exceptions in your car repair warranty. Your e-mail is bulging with offers ranging from half-truth come-on's to outright swindles.  You can't watch TV for 20 minutes without hearing some miraculous offer to "fix" your credit, all followed up by some fellow who races through the real terms in a voice so fast and low no human ear could understand it. On the nightly news a half hour later, the President of the United States tells you in earnest tones that we can provide health care to 30,000,000 people at no additional cost -- or, if a cost oddly appears, one that will be paid by squeezing previously undiscovered "waste, fraud and abuse" out of an already near-bankrupt Medicare system.  Slick talk and slick dealing -- with the not infrequent outright whopper -- have found their way to every corner of our culture.

We saw in the banking crisis the broad and painful toll rampant dishonesty can exact. More such crises and more such pain are coming in a society that still treats the march of deceit as the mostly harmless outcropping of a boys-just-want-to-have-fun culture, and any consternation or pushback as so much tiresome Puritanical nagging.

The law is a moral teacher, and for good or ill our Supreme Court, its Constitutional limitations notwithstanding, has become our National Council of Elders. The Court probably knows that our society could use a lesson in the need for telling the truth. But even the most powerful instrument of law has little chance of rescuing respect for honesty from a culture that has so thoroughly belittled it. People Magazine being more dynamic than any legal process, the country most in need of an enforceable requirement for honest dealing in everyday life is the country least likely to achieve one. Thus while it is not impossible that the Court could ratify such a requirement in its Black and Weyhrauch decisions, it will probably find itself without the tools that would make it able or willing to take up the task.

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